FM FM Derivatives and Options

Question 1

A forward contract on the FM exam obligates the buyer to:

Accepted Answer

Purchase an asset at a predetermined price on a specified future date

Answer

Sell an asset at any time before expiration

Answer

Pay a premium for the right to buy at market price

Answer

Exchange interest payments with a counterparty

Question 2

The no-arbitrage forward price F₀ for a non-dividend-paying stock with current price S₀ at effective annual rate i over T years is:

Accepted Answer

F₀ = S₀ × (1 + i)^T

Answer

F₀ = S₀ / (1 + i)^T

Answer

F₀ = S₀ + i × T

Answer

F₀ = S₀ × e^(−iT)

Question 3

A call option gives the holder the right to:

Accepted Answer

Buy the underlying asset at the strike price before or at expiration

Answer

Sell the underlying asset at the strike price before or at expiration

Answer

Receive interest payments from the option writer

Answer

Exchange one currency for another at a fixed rate

Question 4

Put-call parity for European options states:

Accepted Answer

C − P = S₀ − K·v^T

Answer

C + P = S₀ + K·v^T

Answer

C − P = K·v^T − S₀

Answer

C × P = S₀ × K·v^T

Question 5

On the FM exam, the payoff of a long call option at expiration with strike K and terminal asset price S_T is:

Accepted Answer

max(S_T − K, 0)

Answer

max(K − S_T, 0)

Answer

S_T − K

Answer

K − S_T

Question 6

Which strategy involves buying a call and selling a call at a higher strike, both with the same expiration?

Accepted Answer

Bull call spread

Answer

Bear put spread

Answer

Straddle

Answer

Collar